Good Friday AM,
Today begs the question of how deep down the rabbit hole you want to go. Wednesday was a bad day for bonds. Inflation numbers we so bad that they brought us back to numbers from 35 years ago. Anyone remember hyperinflation of the 80s? We’re not quite there yet, but that was the headline. The jump was not unexpected despite the reaction. Why you ask? Well, the inflation numbers are rolling 12 months, so we are currently replacing some older months that had next to zero inflation with newer months with supply chain disruptive prices which have transient inflation. This WILL continue through Q1 2022 which markets expect until it starts to subside. The catalyst though for Wednesday sell off was two-fold, yes the inflation numbers added to it, but a largely absent 30-yr Treasury auction (no demand with lots of supply) is what pushed rates up while desks were empty heading into the Veteran’s Day holiday. Today, bonds are relatively flat in spite of some bond friendly news. This morning we learned that Consumer Sentiment took a nose dive in a big way. This monthly piece of news is one of the few leading indicators of where the economy is heading. Most all other economic releases are telling us what already happened. Consumers are feeling bad and this leads to a change in spending behavior, which leads to economic slowing, which leads to lower rates. First we have to work through the inflation monster, which will take time and will not occur until the supply chain normalizes. As for today, bonds need to hold their current support level. We are at the bottom of the range which normally calls for floating but we are volatile, so be careful.
Please remain safe and healthy, enjoy the weekend and make today great!